Gold traded modestly higher during Asian trading on Monday as a weaker United States dollar offset expectations of another Federal Reserve interest rate hike, while investors assessed the prospects of renewed diplomatic talks between the United States and Iran.
By 4:15 pm AEST (6:15 am GMT), spot gold was up 0.5% at US$4,069.00 per ounce.
Persistent expectations of a Federal Reserve rate increase in September continued to weigh on bullion, with markets pricing in a 64.7% probability of a hike, according to the CME Group FedWatch Tool.
However, losses in gold were limited by broad weakness in the U.S. dollar, driven by a sharp decline in USD/JPY and optimism surrounding potential diplomatic progress between Washington and Tehran.
The USD/JPY exchange rate fell during early Asian trading after the Japanese yen strengthened amid speculation of further currency market intervention.
Demand for the U.S. dollar as a safe-haven asset also eased after President Donald Trump cancelled plans for fresh attacks on Iran and announced peace talks scheduled for later on Monday.
The development sent oil prices sharply lower and eased some inflation concerns.
Investors will now look to the outcome of the U.S.-Iran discussions and the release of the U.S. ISM Manufacturing PMI for further direction.
Attention will also remain on Friday's closely watched U.S. nonfarm payrolls report, which could influence expectations for Federal Reserve policy and provide fresh momentum for both the U.S. dollar and gold.
